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Wednesday, September 24, 2008


Really SEC?

Making it ILLEGAL to short sell??

Why don't you just make it illegal to ever have a loss? That way the market will NEVER go down! Yeah Capitalism!

Somebody please explain to me how this can in ANY way improve upon the financial crisis, and isn't just a political move.

1 comment:

Ethan said...

Since you asked...

Short selling can rapidly and artificially drive the price of a stock down below it's true value. Because the stock market functions as an auction system with bids (what someone is willing to pay for a stock) and asks (what someone is willing to accept for a stock), excessive short selling puts more sellers into the market than buyers which drives the stock price down. And if new buyers don't move in (because they're fearful of a free-fall in the stock price), then it's bad news bears.

From NPR:

Doug Roberts, of, says a lot of these companies desperately need capital. But if they're being targeted by short sellers and their stock price is falling, investors are afraid to go near them.

If no one invests in them, Roberts says, their price falls until they're forced into bankruptcy.

"It's kind of referred to on Wall Street as the 'death spiral,' where the company is worth more dead than alive," Roberts says.

Back to me:

So normal short selling is fine. Excessive, targeted, predatory short selling is bad. But because it's not easy to tell the difference, the best thing is to cool it for a bit until people can get their act together instead of panicking like a bunch of babies.

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